How We Manage SEM Budgets (And Expectations) At Yahoo

If you’re like me, you spent most of Q4 last year planning out SEM budgets for 2009. Perhaps you even changed your entire SEM strategy from last year to this year due to the economic downturn, and now you’re optimizing to different metrics. Planning meant accounting for seasonality, negotiating with different groups around the organization and finally, finally, sometime between last December and now, you unveiled The Plan. It’s your SEM plan of record for 2009, and it includes spend, clicks, CPC, conversion rate and ROI by search engine, for all products and services you’re going to market with SEM this year.

The only problem is, you’re wrong.

Don’t worry, it’s not really your fault. Your plan has to be wrong, because with all those variables you’ll never be able to forecast SEM with complete certainty, especially if you’re trying to forecast next December, last December. So how do you stand up in front of your managers in Q3 and Q4 and tell them that the budgets and performance targets you planned in Q4 last year don’t really make sense anymore?

After all, it’s your job to get it right—you’re the expert, remember?

The way to deal with this dilemma is what we call the Monthly Reforecast. If you have only one product to market, and you control the budgets, you might get away with just winging it. But at the other end of the spectrum, where we work, we needed something much more bullet-proof. We had 15 different properties engaged in SEM, and to move budgets around we needed the cooperation of roughly 8 different groups. We started doing monthly reforecasting because we had to. It was the only way to manage the special kind of headache we had. Here’s how it works:

Get a sponsor

First of all, nobody in your organization is going to want to re-forecast monthly—why would they? So you’re going to need a VP or higher authority to mandate this new process. SVP of Finance or Marketing is about the right level to shoot for. Tell them how you’ll be able to get a better handle on performance issues and flag wasted SEM spend before it starts. Then draft an email that your sponsor can edit and send to his peers around the company, informing them that you’ll be hitting up all your counterparts around the organization every month to re-forecast SEM.

Make a standard template

Create an Excel template. It will take a while to set up the first time, but you can reuse it every month. Break it down first by product or property (if you’re marketing more than one), by search engine, and include the basic metrics—cost, clicks, orders, revenue, profit, ROI. Don’t forget rows for agency fees if applicable. Total it up at the bottom for each property or product so you can see the totals easily. Use one tab for each effort, and make a summary tab so your manager can see the Big Picture. You may even want to show what this forecast looks like compared to last month’s forecast.

Set a schedule

You’ll want to manage everyone’s expectations around when this is going to happen. Every month you send it out on the 20^th, and finalize it by the 30^th, or something like that.

You will need time to look over all the revisions, negotiate any discrepancies, and pull the whole thing together, so 10 days is about the right amount of time. Once you get through the first few months, it will get easier, and the incremental changes that surface with every forecast will likely get smaller over time. A cautionary note: keep your forecasts limited in their timeframe. In other words, don’t try to reforecast Q4 when you’re in Q1. Stick to what you can see in front of you.

Lean on your agency

If you use an SEM agency, insist that they get involved in the exercise. They can forecast more easily than any of your internal customers, and since they work for you, they’ll be more responsive. Put the burden on them to generate the reforecasts, and have your internal customers approve them. If you have weekly or monthly meetings with your agency, the reforecast will fit nicely into your already-established meeting cycle. 

Ride the RAPIDs

At Yahoo! we use Bain’s RAPID as a decision-making framework. Some companies use RASCI or RACI, some don’t use any at all. If you are in a large or matrixed organization, you will need to define all the players involved when budget decisions have to be made. I spent 9 months of last year building RAPIDs and standardizing process across our company. It wasn’t pretty, but it worked. Now, when budgets need to be added or removed, or moved from one program to another, we have a playbook that states exactly who the decision makers are and who gets to weigh in on the decision making process. This is key to making your reforecast happen within your 10-day timeframe. Again, use your sponsor to pave the way for you and get buy-in at a higher level.

Once you’re set up and running you’ll be a search marketing superhero. The finance folks will be delighted that they know how much you’re spending (and earning), and the marketers will appreciate the way you effectively manage expectations around the organization. So while you may not need to do monthly forecasting just to keep everything straight, in times like these you may want to do it anyway, so your management knows at all times that you’re on top of every dollar being spent. Happy forecasting!